Singapore Economy

Singapore is one of the most open, and thus competitive, markets in the world. The 2011 World Bank Ease of Doing Business Index ranks Singapore as the best country in the world to do business – ahead of Hong Kong and New Zealand. Singapore is also ranked third in the World Economic Forum’s Global Competitiveness Report behind Switzerland and Sweden.

Singapore was one of the original "Newly Industrialised Countries" (NICs) alongside Hong Kong, South Korea and Taiwan. Between the 1960s to the 1980s, the manufacturing industry, in particular, was able to attract numerous Multi-National Companies (MNCs) and Foreign Direct Investment (FDIs) into the country. This became the foundation for Singapore to grow into one of the most advanced and technologically driven economies in the world. With these changes, the Singapore hotel industry grew as well since the city attracted many tourists in the region.

In 2010, Singapore was the third fastest growing economy in the world behind Qatar and Paraguay – with a real GDP growth rate (constant prices, national currency) of 14.471 percent.

The economy of Singapore is best described as a mixed economy. Although the country strongly advocates free-market policies and practices, government intervention is also evident in macroeconomic management and major factors of production such as land, labour and capital resources. This innovative and highly successful economic system – where both the market and the state have equally strong roles in the government – is dubbed as the Singapore Model.

The Singapore Model was born out of necessity. Singapore has a relatively small domestic market, and thus has to open its economy to external markets in order for the economy to thrive. However, the inherent vulnerability in depending on external markets compelled the government to enact economic policies that would safeguard the country from perturbations in the global market. Apart from these policies, the government has also actively encouraged new industries to develop in Singapore so as to respond to the needs of the global market.

The underlying influence of the government can also be felt in other various facets of the society – from education, to transportation, to housing and to the media. However, many social policies that have been implemented are often seen to be supplementary for the economy. As such, many people have labelled the country as “Singapore Inc.” – where the country appears to be run more like a corporation than a nation.

To date however, the Singapore Model or “Singapore Inc.” has proven to be extremely successful. Globally and regionally, the Singapore economy has demonstrated astounding resilience to financial crises such as the 1997 Asian Financial Crisis or the 2008 Global Financial Crisis. Singapore is also the only Asian country to have AAA credit ratings from all three major credit rating agencies – Standard & Poor’s, Moody’s and Fitch. According to the 2011 Index of Economic Freedom, Singapore is the 2nd freest economy in the world. Singapore’s business freedom score is exceptionally high – it takes three days to start a business in Singapore compared to the world’s average of thirty-four days. Apart from strong business and regulatory policies, other factors such as the country’s strategic geographic position, a vast natural seaport, a highly skilled workforce and a favourable tax regime, have created a conducive business environment for companies and industries.

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Singapore's Economy in Brief

Singapore’s Economic Structure

Singapore had a population of 5.165 million in 2010. 2.795 million of the population are part of the labour force. In the same year, Singapore had an unemployment rate of 2.2 percent.

Singapore’s unemployment rate is one of the lowest in the world. The majority of the labour force is highly skilled and well educated – with compulsory primary education for all its citizens.

However during the early 1990s, the Singapore government foresaw a possible labour shortage problem in the future. Despite having one of the best mortality rates in the world, Singapore’s birth rate of 8.5 births/1,000 population meant that its population replacement rate was among the lowest in the world. Singapore also has one of the lowest annual population growth rates in the world at 0.817 percent. As a result, the Singapore government began to actively pursue foreign immigrants and expatriates to live and work in the country. Today, foreign workers comprise of 35.8 percent of the labour force. The vast majority of foreign workers are cheap labour from developing Asian countries who occupy jobs that regular Singaporeans shun. A significant, but smaller, percentage of foreign workers are high value talent who are brought in to provide strong labour competition for Singaporeans.

In 2010, 0.1 percent of the labour force worked in agriculture, with a further 30.2 percent in industry and 69.7 percent in services. Although the population is growing at the moment, Singapore faces the problem of a declining population, and by extension a declining labour force, if fertility rates do not improve and the influx of immigrants is stopped. Singapore’s population is also aging rapidly. In 2010, the median age of Singaporeans was 40.1 years – compared to 39.6 years in the previous year.

The labour force is vital if Singapore wishes to continue its present path of economic growth. Despite a relatively small land area of 687 sq km, Singapore aims to be a global and regional hub for multiple activities, particularly trade and finance. Limited land area in Singapore has led to strong government planning and regulation for land use. Singapore is also increasingly turning to land reclamation from the sea in order to meet the nation’s demands.

Singapore has geostrategic importance in Asia. After the British colonised Singapore in 1819, the nation quickly became the centre of the trade route between India and China. Today, Singapore is the busiest port in the world, above Rotterdam and Hong Kong. Many Multi-National Companies (MNCs) have also set up their regional headquarters in Singapore, due to its high degree of globalisation and accessibility to other markets.

Singapore’s Export, Import & Trade

International trade is highly important for Singapore, as it has virtually no natural resources. A large percentage of trade is conducted to meet domestic demand for energy, food, and other necessities. Singapore also regularly engages in entrepôt trade, whereby industries and businesses in the country import raw materials, before refining them for re-export. 47 percent of Singapore’s exports consist of re-exports.

Singapore is the 14th largest exporter and the 15th largest importer in the world. According to the WTO, Singapore has the highest trade to GDP ratio in the world at 407.9 percent.

As a strong advocate of free trade, Singapore has relatively few trade barriers. Trade partners with Most Favoured Nation (MFN) have zero tariff rates applied to their products apart from six lines for alcoholic beverages. There are however some import restrictions based mainly on environmental, health, and public security concerns. The import of rice also requires import licensing in order to ensure food security and price stability.

Remarkably, despite not having a single drop of proven oil reserves in the country, Singapore is the 18th largest exporter of oil in the world. In 2010, Singapore exported 1.374 million barrels of oil/day.

Singapore’s Industry Sectors

The petroleum and petrochemicals industry in Singapore is one of the biggest in the world. Singapore imports oil from other countries before refining them for further use to other countries. Singapore has the third largest oil refinery in the world, behind Rotterdam and Houston. The Singapore Petroleum Company (SPC) is also a leading player in the petroleum industry and is engaged in exploration, production, refining and distribution.

Manufacturing is another major industry in Singapore. Although Singapore has specialised in digital and electronics manufacturing for the past forty years, the country has diversified into other forms of manufacturing. Thanks to government initiatives and subsidies, biomedical and pharmaceutical manufacturing are seen to be the future for Singapore industries.

Singapore is also a global leader in services, particularly in finance. Singapore’s banking system is considered to be among the strongest in the world. Singapore has the fourth largest foreign exchange market in the world after London, New York and Tokyo. The Singapore Government Securities is the only Asian market, besides Japan, to be part of the Citigroup World Bond Index. The Singapore Exchange (SGX) was also the first demutualised, integrated securities and derivatives exchange in Asia-Pacific. Singapore is recognised as one of the premier asset management centres in Asia with more than 200 international asset management firms. Finally the Asian Dollar Market in Singapore has become an influential element to the economic development of the whole of Asia with assets of more than US$582 billion recording in 2004.

Apart from finance, tourism is the other major service industry available in Singapore. In 2010, tourist arrivals to Singapore hit a record high of 11.638 million visitors with tourist receipts of more than S$18.8 billion. Thanks to government initiatives, tourism has diversified into niche markets such as medical tourism, the gaming industry and the MICE (Meetings, Incentives, Conferencing and Exhibitions) industry. With the advent of the two new integrated resorts in 2010, tourism expenditure in sightseeing and entertainment grew by an astonishing 1,834 percent in 2010.

Services (72.8 percent) and Industry (27.2) made up the bulk of Singapore’s GDP in 2010. Agriculture’s contribution was virtually irrelevant – statistically it accounted for zero percent of the GDP. After two years of negative industrial production growth due to the global financial crisis, Singapore’s industrial production growth rate for 2010 was the third highest in the world at 25 percent – behind Qatar and Taiwan.

Singapore's Economic Outlook for 2015

Singapore’s Economic Forecast

Singapore is the 40th largest economy in the world according to both GDP (current prices, US dollars) and GDP (PPP). In 2010, Singapore’s GDP (current prices, US dollars) was US$222.699 billion and its GDP (PPP) was US$291.937 billion.

Singapore’s GDP (PPP) grew by 15.56 percent from 2009 to 2010. This reflected the strong overall economic recovery from the 2008 global financial crisis where GDP (PPP) had only increased by 3.70 percent in 2008 and 0.14 percent in 2009. Prior to the financial crisis, the average GDP (PPP) growth rate from 2003 to 2007 was 11.268 percent. From 2011 to 2016, Singapore’s GDP (PPP) growth will fall between 5.75 to 6.42 percent. By the end of 2016, Singapore’s GDP (PPP) is expected to reach US$413.46 billion.

Singapore also has the third highest GDP (PPP) per capita in the world. In 2010, Singapore’s GDP (PPP) per capita was US$56,521.73 – behind Qatar and Luxembourg. With the Singaporean government recently revaluing its currency upwards by 1.3 percent in order to contain imported inflation, Singaporeans are expected to be wealthier with its GDP (PPP) per capita increasing by 4.60 percent in 2011. From 2012 to 2016, Singapore’s GDP (PPP) per capita is expected to rise by 3.94 to 4.14 percent annually and reach US$72,178.82 by the end of 2016.

In 2011, inflation (average consumer price change) in Singapore is expected to be hit 3.3 percent. The next five years should see inflation rates gradually decrease and reach 1.976 percent by 2016.

Singapore had the 8th largest current account balance in the world for 2010 at US$49.454 billion. In the aftermath of the 2008 global financial crisis, Singapore’s current account balance had fallen from US$48.478 billion in 2007 to US$27.618 billion in 2008. However, the current account balance has since returned to pre-financial crisis levels and is expected to remain at similar levels for the next five years. By 2016, Singapore’s current account balance is expected to be US$47.518 billion.

Dr Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among all major advanced economies and large emerging economies. In addition to advisory activities (www.differencegroup.net), he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, please see http://www.differencegroup.net/. Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore).

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